THE INFLUENCE OF CORPORATE SOCIAL THE INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY POLICY ON BUSINESS RESPONSIBILITY POLICY ON BUSINESS

EMPLOYMENT PRACTICES: TWO AUSTRALIAN EMPLOYMENT PRACTICES: TWO AUSTRALIAN MINING INDUSTRY CASE-STUDIESMINING INDUSTRY CASE-STUDIES

Meredith Jones, Shelley Marshall and Richard MitchellMeredith Jones, Shelley Marshall and Richard MitchellFaculty of LawFaculty of Law

University of MelbourneUniversity of Melbourne

OverviewOverview

Central QuestionCentral Question

Sources of Content and ObligationsSources of Content and Obligations– National and InternationalNational and International

Conditions that engender a CSR strategyConditions that engender a CSR strategy

Case studiesCase studies

Rio Tinto and BHPRio Tinto and BHP

QuestionQuestion

What influence does CSR have on the What influence does CSR have on the relations between companies and their relations between companies and their employees?employees?Indicators examined:Indicators examined:– Freedom of association and right to bargain Freedom of association and right to bargain

collectivelycollectively– Partnership style relationsPartnership style relations– High Performance Workplace SystemsHigh Performance Workplace Systems

Sources of obligation and Sources of obligation and contentcontent

Australian RegulationAustralian Regulation– Corporations LawCorporations Law– Insolvency LawInsolvency Law– Labour LawLabour Law– ASX Principles of Good Corporate ASX Principles of Good Corporate

GovernanceGovernance

International RegulationInternational Regulation

Type One:Type One:– Sets out broad minimum standards and principlesSets out broad minimum standards and principles– Examples are ILO Declaration on Fundamental Examples are ILO Declaration on Fundamental

Principles at Work, OECD Guidelines for Multinational Principles at Work, OECD Guidelines for Multinational Enterprises Enterprises

Type Two: Reflexive regulationType Two: Reflexive regulation– Set out process by which companies might achieve a Set out process by which companies might achieve a

best practice CSR programmebest practice CSR programme– SA 8000, Dow Jones Sustainability Index and FTSE4 SA 8000, Dow Jones Sustainability Index and FTSE4

GoodGood

Example: Freedom of Example: Freedom of AssociationAssociation

The Dow Jones Sustainability Index disclosure:The Dow Jones Sustainability Index disclosure:– Compliance with ILO convention on freedom of associationCompliance with ILO convention on freedom of association– Percentage of employees covered by collective bargaining Percentage of employees covered by collective bargaining

agreements or represented by an independent trade union.agreements or represented by an independent trade union.– Extent of consultations with trade unions over organisational Extent of consultations with trade unions over organisational

changechange

The SA 8000 requires that companies:The SA 8000 requires that companies:– Respect right to form and join trade unions,Respect right to form and join trade unions,– In situations where right of freedom of association is restricted, In situations where right of freedom of association is restricted,

facilitate parallel means of independent and free association and facilitate parallel means of independent and free association and bargaining.bargaining.

ComparisonComparison

National regulationNational regulation– No CSR obligationsNo CSR obligations– Little content consistent with CSRLittle content consistent with CSR

International regulationInternational regulation– No obligations, soft lawNo obligations, soft law– Comprehensive guidance re content of good Comprehensive guidance re content of good

CSR practiceCSR practice

What conditions engender a What conditions engender a CSR Strategy?CSR Strategy?

CSR adoption not widespread in AustraliaCSR adoption not widespread in AustraliaWe hypothesised that companies adopt as We hypothesised that companies adopt as a response to:a response to:– Reputational risk and desire to extend social Reputational risk and desire to extend social

licenselicense– Heightened by:Heightened by:

Industry specific factors, esp. in miningIndustry specific factors, esp. in mininginternationalisationinternationalisation

Rio Tinto Case Study: OverviewRio Tinto Case Study: Overview

Brief HistoryBrief History

CSR StrategyCSR Strategy

Freedom of Association and Collective Freedom of Association and Collective Bargaining - principle and practiceBargaining - principle and practice

HPWS and Partnership - principle and HPWS and Partnership - principle and practice practice

Rio TintoRio Tinto

Dual listed companies structure the result Dual listed companies structure the result of merger in 1995 between CRA of merger in 1995 between CRA (Australia) and RTZ (UK).(Australia) and RTZ (UK).Emerged as one of the largest mining Emerged as one of the largest mining companies in the world.companies in the world.Business strategy post merger explicitly Business strategy post merger explicitly built around creation of long term value for built around creation of long term value for shareholders shareholders

Rio TintoRio Tinto

Prior to merger the Australian arm, CRA Prior to merger the Australian arm, CRA had been engaged in conflict with CFMEU had been engaged in conflict with CFMEU over de-unionisation strategy.over de-unionisation strategy.

Post merger, becoming increasingly focus Post merger, becoming increasingly focus of attention from environmental groups, of attention from environmental groups, human rights and international trade union human rights and international trade union organisations.organisations.

Increased reputational riskIncreased reputational risk

Stakeholder reports detailing Stakeholder reports detailing environmental harms, human rights environmental harms, human rights abuses, and breaches of labour standards.abuses, and breaches of labour standards.

CFMEU co-ordinated a high profile CFMEU co-ordinated a high profile shareholder campaign focussed on both shareholder campaign focussed on both corporate governance issues and labour corporate governance issues and labour standards.standards.

CSR StrategyCSR Strategy

CSR strategy adopted in sophisticated and CSR strategy adopted in sophisticated and integrated way.integrated way.Incorporated into governance - board committee Incorporated into governance - board committee overseen by Chairoverseen by ChairCompany wide policy statement - The Way We Company wide policy statement - The Way We Work. Work. Annual report on targets and performance Annual report on targets and performance against targets, now moved to GRI reporting.against targets, now moved to GRI reporting.Externally assured and verifiedExternally assured and verifiedLocal level initiatives - community based.Local level initiatives - community based.

CommitmentsCommitments

Adopted key instruments such as:Adopted key instruments such as:– UN Global CompactUN Global Compact– UN Universal Declaration of Human RightsUN Universal Declaration of Human Rights– US/UK Principles Security and Human RightsUS/UK Principles Security and Human Rights

Founding member International Council on Founding member International Council on Mining and MetalsMining and MetalsGlobal Mining InitiativeGlobal Mining InitiativePartnerships with Civil Society groups such Partnerships with Civil Society groups such as Earth Watchas Earth WatchIncluded in Dow Jones Sustainability World Included in Dow Jones Sustainability World IndexIndex

Freedom of Association and Freedom of Association and Collective BargainingCollective Bargaining

Principle and Practice examinedPrinciple and Practice examined

Priniciple: Outlined in key policy document and Priniciple: Outlined in key policy document and recognises right of employees to choose recognises right of employees to choose whether or not they wish to be represented whether or not they wish to be represented collectively. collectively.

Also declare support for ILO Declaration on Also declare support for ILO Declaration on Fundamental Principles and Rights at Work Fundamental Principles and Rights at Work and OECD Guidelines for Multinational and OECD Guidelines for Multinational Enterprises.Enterprises.

These contain strongest statement of freedom These contain strongest statement of freedom of association and right to bargain collectively. of association and right to bargain collectively.

Freedom of Association and Collective Freedom of Association and Collective BargainingBargaining

Declared commitment to freedom of Declared commitment to freedom of association and right to bargain association and right to bargain collectively does represent a shift.collectively does represent a shift.

Previously took position of open opposition Previously took position of open opposition to union involvementto union involvement

Declared that award employees less Declared that award employees less valuable to company than ‘staff’ valuable to company than ‘staff’ employees.employees.

IR: PracticeIR: Practice

At the level of practice, Rio does engage in At the level of practice, Rio does engage in collective bargaining.collective bargaining.Collective agreement at around 13 sites, 9 union Collective agreement at around 13 sites, 9 union agreements. agreements. Agreements contain very few union rights Agreements contain very few union rights provisions, some provide for consultation about provisions, some provide for consultation about major change. major change. Pragmatic rather than ideological approach.Pragmatic rather than ideological approach.

HPWS and PartnershipHPWS and Partnership

Increased disclosure on employment Increased disclosure on employment practices evident over the years of CSR practices evident over the years of CSR reporting.reporting.

Approaches consistent with HPWS Approaches consistent with HPWS include six sigma methodologies, ‘open include six sigma methodologies, ‘open communications flows’ via 360 feedback communications flows’ via 360 feedback and skill development frameworks.and skill development frameworks.

HPWS and PartnershipHPWS and Partnership

Partnership: Mobilising whole workforce behind Partnership: Mobilising whole workforce behind common goals, participation on business common goals, participation on business outcomes and collaborating on achievement of outcomes and collaborating on achievement of changes.changes.Clear evidence of commitment in principle to Clear evidence of commitment in principle to partnership style relations and high performance partnership style relations and high performance workplace systems.workplace systems.Difficult to determine approach ‘in practice’ as no Difficult to determine approach ‘in practice’ as no reporting against targets in this area.reporting against targets in this area.

HPWS and PartnershipHPWS and Partnership

CSR only minor influence on employment CSR only minor influence on employment practices at Rio Tintopractices at Rio Tinto

HPWS pursued since 1980sHPWS pursued since 1980s

Some change in emphasis on consultation Some change in emphasis on consultation and participation in CSR reporting and participation in CSR reporting

Not reflected in industrial agreements.Not reflected in industrial agreements.

ConclusionConclusion

Rio Tinto: CSR has not been a major influence Rio Tinto: CSR has not been a major influence on employment practices.on employment practices.Change in declared commitment to freedom of Change in declared commitment to freedom of association and right to bargain collectivelyassociation and right to bargain collectivelyPragmatic rather than ideological in practicePragmatic rather than ideological in practiceEmployment systems disclosed are consistent Employment systems disclosed are consistent with HPWS or partnership with HPWS or partnership Practice difficult to assessPractice difficult to assess

ConclusionConclusion

Very different environment now - Very different environment now - commodities boom means ensuring commodities boom means ensuring production not cost cutting is the focus.production not cost cutting is the focus.

Will CSR influence employment practices Will CSR influence employment practices in the future?in the future?

BHP Billiton Case StudyBHP Billiton Case Study

Background: Background:

Adopted CSR strategy following DLC merger in Adopted CSR strategy following DLC merger in 20012001

Decade prior to merger a low point for BHP: Decade prior to merger a low point for BHP: – Ok Tedi environmental disasterOk Tedi environmental disaster– Profits waningProfits waning

Responded by writing off bad investment and Responded by writing off bad investment and pursuing aggressive de-unionisation in Pilbarapursuing aggressive de-unionisation in Pilbara

DLC merger increased reputational DLC merger increased reputational risk for BHPBrisk for BHPB

Billiton had a controversial human rights Billiton had a controversial human rights record in Africarecord in Africa

Unions feared that ‘savings from Unions feared that ‘savings from synergies’ = job lossessynergies’ = job losses

Increased attention from analysts in capital Increased attention from analysts in capital markets where CSR concerns are more markets where CSR concerns are more mainstreammainstream

Responded to risk by:Responded to risk by:

Aligning core policies of operations, Aligning core policies of operations, including CSR policies, against the including CSR policies, against the general trend of de-centralisationgeneral trend of de-centralisationCSR policies driven by BoardCSR policies driven by Board2 CSR related committees of the Board2 CSR related committees of the BoardMajor CSR report every year released with Major CSR report every year released with Annual ReportAnnual ReportLinked to managers’ performance Linked to managers’ performance indicatorsindicators

Strong formal commitment to freedom of Strong formal commitment to freedom of association and bargaining collectivelyassociation and bargaining collectivelyUses language of partnership in disclosure Uses language of partnership in disclosure documentsdocumentsCommitted to many international Committed to many international instruments, including UN Global Compact instruments, including UN Global Compact (since 2001)(since 2001)Listed on Dow Jones Sustainability Index Listed on Dow Jones Sustainability Index and FTSE4Goodand FTSE4Good

What was happening aside from What was happening aside from formal commitments?formal commitments?

Freedom of Association:Freedom of Association:Continues to negotiate collective Continues to negotiate collective agreements with unions in most sites agreements with unions in most sites around Australiaaround AustraliaPilbara campaign to move employees onto Pilbara campaign to move employees onto individual contracts (Iron Ore) continuedindividual contracts (Iron Ore) continuedContrast with Illawarra where mixed Contrast with Illawarra where mixed approach used (Coal)approach used (Coal)

Pilbara DisputePilbara Dispute

Proposed merger with competitor revealed Proposed merger with competitor revealed substantially lower labour costs due to use substantially lower labour costs due to use of individual contractsof individual contractsNovember 1999: offered individual November 1999: offered individual contracts which contained only 6 clausescontracts which contained only 6 clausesUnion attempts to compel company to Union attempts to compel company to enter into collective negotiations failedenter into collective negotiations failedUnions then shifted focus to BHPB’s Unions then shifted focus to BHPB’s commitment to Global Compactcommitment to Global Compact

Global Compact initially sympathetic towards Global Compact initially sympathetic towards unions, based on ILO’s findings of incompatibility unions, based on ILO’s findings of incompatibility of Australia’s labour law with collective of Australia’s labour law with collective bargaining components of CLSbargaining components of CLSGlobal Compact later retracted this statement on Global Compact later retracted this statement on the basis that the Compact ‘does not prescribe a the basis that the Compact ‘does not prescribe a particular form of workplace arrangement’particular form of workplace arrangement’According to BHPB around 60% of employees According to BHPB around 60% of employees are now on individual agreements in Pilbaraare now on individual agreements in Pilbara

IllawarraIllawarra

Only introduced individual agreements at Only introduced individual agreements at one siteone site

All other sites have collective agreementsAll other sites have collective agreements

New sites have ‘greenfield’ agreements New sites have ‘greenfield’ agreements which are substantially more flexiblewhich are substantially more flexible

Partnership relations at BHPBPartnership relations at BHPB

Hard to tell from available evidenceHard to tell from available evidence

Pilbara: Pilbara: – No ‘partnership’ with unions at PilbaraNo ‘partnership’ with unions at Pilbara– Absence of structured and permanent consultative Absence of structured and permanent consultative

arrangements and low job securityarrangements and low job security

Illawarra:Illawarra:– Strong partnership with unions on face of agreement, Strong partnership with unions on face of agreement,

but little trust in practice (highly adversarial) but little trust in practice (highly adversarial)

High Performance Work High Performance Work Systems at BHPBSystems at BHPB

PilbaraPilbara– High levels of temporal, functional and spatial High levels of temporal, functional and spatial

flexibility, but no consultationflexibility, but no consultation

IllawarraIllawarra– Union agreements offer high levels of Union agreements offer high levels of

consultation over work practices, but aim of consultation over work practices, but aim of agreement is to limit flexibilityagreement is to limit flexibility

AnalysisAnalysis

Internationalisation and risks associated Internationalisation and risks associated with mining did contribute to growing with mining did contribute to growing commitment to CSRcommitment to CSR

Adoption of CSR not without Adoption of CSR not without organisational tensions:organisational tensions:– Mergers necessitated de-centralised Mergers necessitated de-centralised

managementmanagement– CSR accountability requires bureaucratic CSR accountability requires bureaucratic

centralisationcentralisation

Adoption of CSR resulted in ‘ratcheting up’ of Adoption of CSR resulted in ‘ratcheting up’ of level of employment policies in both companies, level of employment policies in both companies, to comply with standards in most rigorous to comply with standards in most rigorous jurisdictionjurisdictionGap between applicable national laws in Gap between applicable national laws in Australia and standards committed to by Australia and standards committed to by companiescompaniesHowever, international regulations are not However, international regulations are not enforceable, despite strong normative forceenforceable, despite strong normative forceNational laws continue to ‘matter most’ where National laws continue to ‘matter most’ where competitive pressures at playcompetitive pressures at play

Product market conditions significantProduct market conditions significant– Individualised agreements in both companies in iron Individualised agreements in both companies in iron

ore industry where commodity prices slidore industry where commodity prices slid– Collective agreements remain in coal in both Collective agreements remain in coal in both

companies, which has received a steadier pricecompanies, which has received a steadier price

Adoption of CSR did not lead to a turn-around in Adoption of CSR did not lead to a turn-around in employment practicesemployment practices

Question whether CSR a source of re-regulationQuestion whether CSR a source of re-regulation